𝐅𝐘𝐈: 𝐂𝐎𝐌𝐌𝐎𝐍 𝐑𝐄𝐀𝐋 𝐄𝐒𝐓𝐀𝐓𝐄 𝐓𝐄𝐑𝐌𝐒 𝐘𝐎𝐔 𝐒𝐇𝐎𝐔𝐋𝐃 𝐊𝐍𝐎𝐖
𝐅𝐘𝐈: 𝐂𝐎𝐌𝐌𝐎𝐍 𝐑𝐄𝐀𝐋 𝐄𝐒𝐓𝐀𝐓𝐄 𝐓𝐄𝐑𝐌𝐒 𝐘𝐎𝐔 𝐒𝐇𝐎𝐔𝐋𝐃 𝐊𝐍𝐎𝐖
EQUITY VS. DOWNPAYMENT
Understanding both equity and downpayment is key when purchasing real estate. Here’s how they differ and how they work together:
1. 𝘿𝙚𝙛𝙞𝙣𝙞𝙩𝙞𝙤𝙣:
Equity: The portion of the property you own, calculated as the property’s value minus any outstanding loan. Equity grows over time as you pay down your mortgage or as the property appreciates.
Downpayment: The initial amount you pay upfront when purchasing a property, usually a percentage of the total price. This reduces the loan needed and impacts your future equity.
2. 𝙏𝙞𝙢𝙞𝙣𝙜:
Equity: Builds gradually over time as you make payments on your loan or as your property’s value increases.
Downpayment: Paid once at the time of purchase to secure the property and reduce the loan amount.
3. 𝙄𝙢𝙥𝙖𝙘𝙩 𝙤𝙣 𝙁𝙞𝙣𝙖𝙣𝙘𝙞𝙣𝙜:
Equity: Increases with each mortgage payment and can be used as collateral for refinancing or other loans.
Downpayment: Lowers the amount you need to borrow, often resulting in better loan terms and lower interest rates.
4. 𝘾𝙖𝙡𝙘𝙪𝙡𝙖𝙩𝙞𝙤𝙣:
Equity: Calculated as the difference between your property’s current market value and the remaining balance on your mortgage.
Downpayment: Typically 10-20% of the property’s total purchase price, paid upfront.
𝗦𝗶𝗺𝗶𝗹𝗮𝗿𝗶𝘁𝗶𝗲𝘀: Both equity and downpayment represent your ownership stake in the property. The higher the downpayment, the more equity you start with, and the faster it grows.
𝗜𝗻 𝘀𝗵𝗼𝗿𝘁, a downpayment is an upfront investment when buying a property, while equity represents the increasing ownership stake you build over time through payments or property appreciation.
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